Broomcorn brooms dispute

Last updated

Brooms manufactured from broomcorn became specifically subject to an increase in US import tariffs in 1996. In response to the US action, chief exporter of broomcorn brooms Mexico requested dispute settlement from an arbitration tribunal of NAFTA, which eventually decided in Mexico's favor. It was one of only three cases to be decided under the provisions of Chapter 20 of NAFTA.

Contents

The Broom Corn Brooms Dispute

"IN THE MATTER OF THE U.S. SAFEGUARD ACTION TAKEN ON BROOM CORN BROOMS FROM MEXICO" was a case brought before the NAFTA Free Trade Commission by the Mexican government, citing the US as respondent.

BROOM CORN BROOMS
NAFTA Arbitration Tribunal convened under Chapter 20
Decided January 30, 1998
Full case nameIN THE MATTER OF THE U.S. SAFEGUARD

ACTION TAKEN ON BROOM CORN BROOMS

FROM MEXICO

Docket nos.USA-97-2008-01
Prior historyNAFTA Free Trade Commission meeting

December 11, 1996

Holding
By improperly defining "Like Product"

the US imposed tariffs in violation of NAFTA

Court membership
Chief
Paul O’Connor
Arbiters
Raymundo Enriquez
Dionisio Kaye
John H. Barton
Robert E. Hudec
Laws applied
NAFTA Annex 803.3(12)

Article 3.1 of the WTO Safeguards Code

Factual background

Pre-NAFTA tariffs

A Broomcorn harvest in 1907. Higgins, Texas. (7348680590).jpg
A Broomcorn harvest in 1907.

In 1965 the US charged the following tariffs on broomcorn brooms to countries with most-favored-nation (MFN) status: 121,478 dozen at 8% ad valorem, and additional brooms at 32 cents each (for brooms under 96 cents in value) or 32% ad valorem (for those worth 96 cents and over). [1]

NAFTA tariff obligations

From 1 January 1994, following the signing of NAFTA, US tariffs on broomcorn brooms were set at the following rate: all brooms worth less than 96 cents were duty-free, the first 100,000 dozen worth 96 cents or more were duty-free, and imports in excess of this figure were to be subject to a duty of 22.4% ad valorem from 1994 to 1999, a duty of 16% from 2000 to 2004, and duty-free after 2004. [1]

U.S. Safeguards proceedings

A table describing broomcorn production in several states from 1932 to 1933. Broomcorn-production-by-state-1932-1933.jpg
A table describing broomcorn production in several states from 1932 to 1933.

In March 1996 the US Cornbrooms Task Force, an industry interest group, submitted two petitions to the US International Trade Court (ITC) – one under the Trade Act of 1974 and one under NAFTA – to allege serious injury as a result of rapidly increasing imports of broomcorn brooms from Mexico under the new duty-free provisions. In July 1996 the ITC ruled that there was material harm to the cornbrooms manufacturers and they were entitled to relief in both petitions. In August 1996 the ITC sent its report to the US President. On 28 November 1996, following the recommendations laid out in the ITC report, President Clinton issued Proclamation 6961, imposing a three-year tariff increase on certain broomcorn imports. [1]

The dispute process

Meeting of the Free Trade Commission

On 11 December 1996, at the request of Mexico and in keeping with Article 2006(4) of NAFTA, the NAFTA Free Trade Commission (FTC) convened to negotiate an agreement between Mexico and the US. On 12 December 1996, Mexico complicated negotiations by imposing retaliatory tariffs amounting to an estimated $1.4 million cost to the US economy. After the requisite 30 days of negotiation had elapsed and no agreement had been reached, Mexico asked on 14 January 1997, that an arbitration tribunal be organized under the rules set out in Article 2008. [1]

Convening of the tribunal

NAFTA arbitration tribunals under Chapter 20 [3] were convened when negotiations failed to resolve an ongoing dispute. Such a tribunal consisted of five members drawn from a list of "30 individuals who are willing and able to serve as panelists" maintained by each member nation. Potential panelists were "appointed by consensus for terms of three years, and may be reappointed." Article 2009 provided that these panelists:

  1. have expertise or experience in law, international trade, other matters covered by this Agreement or the resolution of disputes arising under international trade agreements, and shall be chosen strictly on the basis of objectivity, reliability and sound judgment;
  2. be independent of, and not be affiliated with or take instructions from, any Party; and
  3. comply with a code of conduct to be established by the Commission [4]

In accordance with these guidelines, five arbiters were selected:

Chief: Paul O’Connor

Arbiters: Raymundo Enriquez, Dionisio Kaye, John H. Barton, Robert E. Hudec

Submission of arguments

Rather than sending litigants to argue their cases before the tribunal, parties to a NAFTA arbitration submitted written arguments for review. For both parties the arguments hinged on two significant points:

  1. Did the tribunal have legitimate jurisdiction in this case?
  2. The legal definition of the term 'like product' as established in GATT and WTO provisions and incorporated in Article 308.3 of NAFTA.

The US argument

  1. The US argued that the NAFTA tribunal did not have jurisdiction in the dispute, as the term 'like product' did not appear word for word in NAFTA, and that while both the US and Mexico were signatories to GATT and members of WTO, the tribunal was not empowered by WTO and therefore did not have jurisdiction in disputes originating from WTO. Therefore, Mexico ought to have taken the case directly to WTO rather than NAFTA.
  2. Following this same line of argument, the US argued that the "word 'like', while not synonymous with the word 'identical', did call for a greater degree of similarity than is commonly associated with the English word 'similar'", [1] and that NAFTA contained no definition of 'like product' to contradict this understanding. The US further argued that even if the tribunal were to accept the WTO understanding of 'like product', WTO had been inconsistent in its interpretation of the term, and had itself conceded that the interpretation of 'like product' was "to be assessed on a case-by-case basis, and [would] always involve 'an unavoidable element of individual discretionary judgment'". [5] [1]

The Mexican argument

  1. Mexico argued that the NAFTA tribunal did have jurisdiction in this case, largely because Articles 802, 803.3, and 805 adopted much of the WTO and GATT language regarding 'like products', even if they weren't phrased identically. They also noted that Article 2005(1) "generally gives parties the right to initiate dispute settlement either in GATT or in NAFTA whenever a dispute involves a matter 'arising under both this Agreement and the General Agreement on Tariffs and Trade'". [4] [1] Finally, Mexico noted that Article 2005(6) required that once either a NAFTA or GATT dispute settlement method was chosen, another could not be engaged to resolve the dispute, so agreement by the US to FTC negotiation had precluded Mexico's ability to arbitrate the case under WTO. [1]
  2. Mexico also argued that, because the GATT principles were already present at least in intent in Articles 802, 803.3, and 805, the definition of 'like product' should be interpreted as it had been interpreted by WTO and GATT. Mexico cited several cases wherein 'like product' was defined broadly to include products that "though not 'like' the imported product, are nonetheless commercially interchangeable or substitutable for it". In this case, that would have meant "US-made plastic brooms were 'like' the imported broomcorn brooms under investigation", [1] and therefore the impact of US imports of Mexican broomcorn brooms had a negligible effect on the overall US broom market.

Final outcome

The NAFTA tribunal's decision

The tribunal ultimately sided with Mexico on both substantive points and required the US to take immediate steps to right the tariff imbalance. Specifically the NAFTA tribunal ruled that:

  1. it ultimately had jurisdiction both because of the similarity between Article 4.1 of GATT and Article 803.3 of NAFTA and because the US had engaged in Article 2005 negotiations with Mexico in the FTC, thus recognizing NAFTA as an appropriate structure within which to arbitrate this issue.
  2. the preponderance of existing GATT and WTO cases adhered to the definition of 'like products' put forward by Mexico, and the market the US should have considered when deciding the appropriateness of tariffs was the overall broom market, not solely the broomcorn brooms produced by US farmers. The industry in question was therefore not at risk of serious harm from imports of Mexican broomcorn brooms and the new tariffs were not justified.

Responses of the party states

The US, hoping for favorable solutions to other, concurrent, NAFTA cases it faced against Mexico, complied quickly with the ruling of the tribunal and withdrew the tariffs. [6] Mexico followed with the withdrawal of its retaliatory tariffs.

See also

Related Research Articles

Free-trade area Regional trade agreement

A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and to increase trade of goods and services with each other. If natural persons are also free to move between the countries, in addition to a free-trade agreement, it would also be considered an open border. It can be considered the second stage of economic integration.

World Trade Organization Intergovernmental trade organization

The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. Governments use the organization to establish, revise, and enforce the rules that govern international trade. It officially commenced operations on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, thus replacing the General Agreement on Tariffs and Trade (GATT) that had been established in 1948. The WTO is the world's largest international economic organization, with 164 member states representing over 98% of global trade and global GDP.

Canada–United States softwood lumber dispute Trade dispute between Canada and the United States

The Canada–U.S. softwood lumber dispute is one of the largest and most enduring trade disputes between both nations. This conflict arose in 1982 and its effects are still seen today. British Columbia, the major Canadian exporter of softwood lumber to the United States, was most affected, reporting losses of 9,494 direct and indirect jobs between 2004 and 2009.

In international economic relations and international politics, most favoured nation (MFN) is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the "most favoured nation" by the country granting such treatment. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country.

Trade war Economic conflict using tariffs or other trade barriers

A trade war is an economic conflict often resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. If tariffs are the exclusive mechanism, then such conflicts are known as customs wars, toll wars, or tariff wars; as a reprisal, the latter state may also increase the tariffs. Increased protection causes both nations' output compositions to move towards their autarky position. Minor trade disagreements are often called trade disputes when the war metaphor is hyperbolic.

The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1993 and embracing 123 countries as "contracting parties". The Round led to the creation of the World Trade Organization, with GATT remaining as an integral part of the WTO agreements. The broad mandate of the Round had been to extend GATT trade rules to areas previously exempted as too difficult to liberalize and increasingly important new areas previously not included. The Round came into effect in 1995 with deadlines ending in 2000 under the administrative direction of the newly created World Trade Organization (WTO).

A free trade agreement (FTA) or treaty is an agreement according to international law to form a free-trade area between the cooperating states. There are two types of trade agreements - bilateral and multilateral. Bilateral trade agreements occur when two countries agree to loosen trade restrictions between the two of them, generally to expand business opportunities. Multilateral trade agreements are agreements among three or more countries, and are the most difficult to negotiate and agree.

Market access Ability to sell goods and services across borders

In international trade, market access is a company's ability to enter a foreign market by selling its goods and services in another country. Market access is not the same as free trade, because market access is normally subject to conditions or requirements, whereas under ideal free trade conditions goods and services can circulate across borders without any barriers to trade. Expanding market access is therefore often a more achievable goal of trade negotiations than achieving free trade.

The Agreement on the Application of Sanitary and Phytosanitary Measures, also known as the SPS Agreement or just SPS, is an international treaty of the World Trade Organization (WTO). It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), and entered into force with the establishment of the WTO at the beginning of 1995. Broadly, the sanitary and phytosanitary ("SPS") measures covered by the agreement are those aimed at the protection of human, animal or plant life or health from certain risks.

The Agreement on Technical Barriers to Trade, commonly referred to as the TBT Agreement, is an international treaty administered by the World Trade Organization. It was last renegotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, with its present form entering into force with the establishment of the WTO at the beginning of 1995, binding on all WTO members.

Section 301 of the U.S. Trade Act of 1974 authorizes the President to take all appropriate action, including tariff-based and non-tariff-based retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce. Section 301 cases can be self-initiated by the United States Trade Representative (USTR) or as the result of a petition filed by a firm or industry group. If USTR initiates a Section 301 investigation, it must seek to negotiate a settlement with the foreign country in the form of compensation or elimination of the trade barrier. For cases involving trade agreements, the USTR is required to request formal dispute proceedings as provided by the trade agreements. The law does not require that the U.S. government wait until it receives authorization from the World Trade Organization (WTO) to take enforcement actions, and the President is increasingly focused on enforcing intellectual property (IP) rights under the "Special" 301 amendments but the U.S. has committed itself to pursuing the resolution of disputes under WTO agreements through the WTO dispute settlement mechanism, which has its own timetable.

International Trade Centre Multilateral agency

The International Trade Centre (ITC) is a multilateral agency which has a joint mandate with the World Trade Organization (WTO) and the United Nations (UN) through the United Nations Conference on Trade and Development (UNCTAD).

Rules of origin Rules to attribute a country of origin to a product

Rules of origin are the rules to attribute a country of origin to a product in order to determine its "economic nationality". The need to establish rules of origin stems from the fact that the implementation of trade policy measures, such as tariffs, quotas, trade remedies, in various cases, depends on the country of origin of the product at hand.

Non-violation nullification of benefits (NVNB) claims are a species of dispute settlement in the World Trade Organization arising under World Trade Organization multilateral and bilateral trade agreements. NVNB claims are controversial in that they are widely perceived to promote the social vices of unpredictability and uncertainty in international trade law. Other commentators have described NVNB claims as potentially inserting corporate competition policy into the World Trade Organization Dispute Settlement Understanding (DSU).

Integration is a political and economic agreement among countries that gives preference to member countries to the agreement. General integration can be achieved in three different approachable ways: through the World Trade Organization (WTO), bilateral integration, and regional integration. In bilateral integration, only two countries economically cooperate with one another, whereas in regional integration, several countries within the same geographic distance become joint to form organizations such as the European Union (EU) and the North American Free Trade Agreement (NAFTA). Indeed, factors of mobility like capital, technology and labour are indicating strategies for cross-national integration along with those mentioned above.

In economics, a tariff-rate quota (TRQ) is a two-tiered tariff system that combines import quotas and tariffs to regulate import products.

Investor-state dispute settlement (ISDS) or investment court system (ICS) is a system through which countries can be sued by foreign investors for certain state actions affecting foreign direct investment (FDI). This system most often takes the form of international arbitration between a foreign investor and the nation receiving the FDI.

Since 1970s, there has been on going trade disputes between Mexico against the United States. The complaints were taken to General Agreement on Tariffs and Trade (GATT) committee and its 1995 successor; the World Trade Organization (WTO). The case became known as Tuna-Dolphin I, Tuna-Dolphin II and US-Tuna II (Mexico). Complaints concerned the USA embargo on yellowfin tuna and yellowfin tuna product imports that used purse-seine fishing methods and the labeling there of. Purse-seine fishing has resulted in a high number of dolphin kills.

The US-Mexico Trade Dispute - Stainless Steel Sheets and Coils dumping is a trade dispute between the governments of The United States and Mexico. On May 26, 2006 Mexico requested consultations with the United States about a number of final anti-dumping judgments made by the US Department of Commerce. The judgments concerned the imports of stainless steel sheets and strips from Mexico, which were supposedly illegal dumping through the use of a "Zeroing" technique by the US Department of Commerce. Mexico believed that some of the laws, regulations, administrative practices and methodologies implemented by the US impaired and nullified the benefits added to Mexico, directly or indirectly, under the World Trade Organization Agreement on Customs Valuation, and that the anti-dumping laws were unwarranted. The consultations were held to discuss activities carried on between January 1999 and June 2004. This led to a panel being established in December 2006, the proceedings of which continued until May 2013, with a mutually agreeable solution being reached. Japan asked to join the consultation in June 2006.

A “like product” describes the particular relationship in international trade law between two goods that are produced by two different trading nations. This concept is the foundation of the two central principles of the World Trade Organisation (WTO) system as outlined in the General Agreement on Tariffs and Trade 1947 (GATT): Most Favoured Nation and National Treatment. If two products cannot be differentiated under the WTO system/GATT then the non-discrimination principle stipulates that a WTO trading member shall not discriminate between like products from different trading partners and shall not discriminate between its own and like foreign products. In essence, if two products are found to be ‘like’ then the issue is whether the foreign product is treated less favourable than the domestic product or another foreign product.

References

  1. 1 2 3 4 5 6 7 8 9 O’Connor, Paul, Raymundo Enriquez, Dionisio Kaye, John H. Barton, and Robert E. Hudec. IN THE MATTER OF THE U.S. SAFEGUARD ACTION TAKEN ON BROOM CORN BROOMS FROM MEXICO. PDF. NAFTA Secretariat, 2014.
  2. ↑ "So Where is the Broomcorn Capital of the World?". Baca County History. 2014-12-31. Retrieved 2018-10-27.
  3. ↑ "Overview of the Dispute Settlement Provisions." NAFTA. 2014. Accessed October 27, 2018. https://www.nafta-sec-alena.org/Home/Dispute-Settlement/Overview-of-the-Dispute-Settlement-Provisions#chap20.
  4. 1 2 "NAFTA - Chapter 20 Part 1." Foreign Trade Information System. Accessed October 27, 2018. http://www.sice.oas.org/Trade/NAFTA/chap-201.asp.
  5. ↑ Japan — Taxes on Alcoholic Beverages, WT/DS8/AB/R (1996) at page 21.
  6. ↑ "Decisions and Reports." NAFTA. 2014. Accessed October 27, 2018. https://www.nafta-sec-alena.org/Home/Dispute-Settlement/Decisions-and-Reports.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.